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Asean bloc’s free trade successes just beginning
Traditional strengths complimented by new ecosystems, digitalization, consumer wealth
Noor Adhami 25 Jun 2024

An upgrade to the Southeast Asian bloc’s key trade agreement holds huge potential for businesses that can keep up with a changing regulatory environment.

There’s no doubt that Southeast Asia has been the lucky winner in the realignment of global supply chains. But, when digging deeper, it’s clear that this recent influx of foreign investment and international businesses has little to do with luck.

At a time when many governments are putting up barriers, the Association of Southeast Asian Nations (Asean)’s commitment to open trade has helped increase the region’s total exports by nearly 40% in the four years leading to 2022, reaching US$1.96 trillion.

This effort is being supported by a number of important and growing free trade deals, including the Regional Comprehensive Economic Partnership (RCEP) came into effect in 2022, covering the 10 Asean members, plus Australia, New Zealand, Japan, South Korea and China.

Furthermore, businesses in Asean can look to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and bilateral treaties, such as the EU-Vietnam free trade agreements (FTAs), to increase access to new markets and create opportunities in the region. We’re seeing increasing awareness of these agreements among our clients, who are keen to understand how they can benefit their growth.

Alongside an expanding network of bilateral and regional FTAs, closer integration within the Asean bloc is increasing its appeal to international businesses and those seeking expansion.

Intra-Asean opportunity

Central to Asean’s integration is the 2010 Asean Trade in Goods Agreement (ATIGA) that has been instrumental in the removal of tariffs within the region, with 98% of qualifying goods now at zero.

The even better news? An upgrade is on the way with bulk negotiations expected to be completed this year. 

ATIGA 2.0 promises to remove some of the non-tariff frictions that continue to restrict international trade in many Asean markets, creating new trading opportunities for businesses in the sectors it covers and unleashing a new wave of growth.

Alongside the ATIGA upgrade, a ground-breaking regional agreement on key elements of the digital economy also has the potential to open opportunities as the region rapidly transitions to the new economy.

Asean leaders in September 2023 set a target to complete negotiations on a digital economy framework in two years that will govern how member states cooperate on digital trade, cross-border e-commerce and digital payments.

All this promises to open a new avenue of growth for businesses across Asean, amplifying opportunities, and bringing more and better jobs, goods and services to hundreds of millions of people.

Seizing Asean’s moment

Asean’s appeal continues to increase, thanks to this powerful network of FTAs and deepened regional integration. Therefore, the findings of our latest client survey didn’t come as a surprise when 74% of 3,500 firms operating in Asean said they’re planning to invest more in the region this year than they did in 2023.

That being said, Asean businesses and international firms with a presence in the region must be alert to changes in trade regulations and non-tariff measures to ensure they capitalize on this potential.

Staying on top of evolving regulations amid this proliferation of regional and bilateral free trade agreements requires work, but the effort is well worth it and the benefits are there for the taking.

In business, it’s often said there is no such thing as luck. While Asean is in the sweet spot for global supply chains right now, it is only there because of its strong foundations. Competitive labour costs, a rich talent pool, digitalization and an openness to international trade and investment are all the result of years of planning and development.

Asean’s economic growth and deepening international connectivity puts it on the cusp of a historic opportunity in global trade, further strengthening its traditional sectors like agriculture and fisheries, as well as its hugely exciting new economy: everything from electric vehicles in Indonesia and Thailand, to consumer electronics in Vietnam, semiconductors in Malaysia and healthtech in Singapore.

Sitting at the heart of the region, I have the great privilege of seeing all of this come to life – as traditional sector strengths are being complimented by new ecosystems, rapid digitalization and growing consumer wealth. This is truly Asean’s time.

Noor Adhami, who is based in Singapore, is the global head of international banking at HSBC.

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